Numerous types of loans are secured by assets. For example, purchasers of residential homes or other types of real property (“realty”) usually borrow a significant portion of the purchase price, via a mortgage. The purchaser (“mortgagor”) borrows funds from a lender such as a bank, trust company or private investor, and grants a mortgage in the realty to the lender (“mortgagee”), so that the realty acts as security for the loan. Likewise, purchasers of chattels such as automobiles often receive a loan to cover a portion of the purchase price, and the loan is secured by a similar chattel mortgage. Even beyond the more conventional use of real or personal property as security, lenders are often willing to accept other forms of assets as security for loans, including intangible property such as intellectual property rights (e.g. patents, trademarks, copyrights, design registrations, etc.), choses in action, stocks, bonds, debentures, mutual fund units, and a myriad of other examples. By way of illustration, the present specification discusses primarily realty and related mortgages, although it will be appreciated that the problems and solutions discussed herein may apply equally to other types of loans secured by other types of assets.
In the context of residential realty mortgages, mortgage insurance policies are sometimes purchased by the borrower, either voluntarily or as a mandatory pre-condition imposed by the lender. Typically, such mortgage insurance policies are triggered by the occurrence of an event beyond the borrower's control which adversely affects the borrower's ability to re-pay the loan, such as involuntary loss of employment, injury or death, for example. The direct beneficiary of such policies is generally the lender. In the event of default by the borrower, the lender forecloses on the property and sells it, and the insurance covers any loss that the lender may suffer if the net sale proceeds are less than the outstanding loan balance.
Thus, it is the lender, not the borrower, who is the direct beneficiary of such policies. The borrower does not benefit from such insurance, and may still be subjected to foreclosure or other actions by the lender.